HUD Nominee Coasts Through Senate Questioning

By Charles S. Clark

June 17, 2014

President Obama’s nominee to replace Shaun Donovan atop the Housing and Urban Development Department told a largely friendly Senate panel on Tuesday that he would stress cross-agency collaboration and use metrics to gauge program success.

San Antonio Mayor Julian Castro was praised by his home-state senator, Republican Whip John Cornyn, who said, “Many Texans are reassured by Mr. Castro’s example that the American dream is alive.” But Castro took the conventional route of nominees, avoiding policy specifics on issues such as reforming government-sponsored enterprises and assuring the solvency of the Federal Housing Administration’s mortgage fund.

Castro, who noted that his father once lived in public housing and his mother worked for the San Antonio Housing Authority, said, “I’m a believer in cross-agency collaboration. San Antonio’s East Side is the only neighborhood in America to receive a Promise Neighborhoods grant, a Choice Neighborhoods grant, a Byrne Criminal Justice Program grant and a Promise Zone designation. We accomplished this by getting beyond silos and working across agencies to improve housing, educational achievement and overall quality of life.”

If confirmed, Castro added, he would also press HUD on the value of measuring outputs, not just inputs or dollars spent. “In San Antonio, we initiated a process of unprecedented public engagement and accountability called SA2020. Through a series of community meetings, residents spoke clearly about what kind of city they wanted to be in 2020. But we didn't just set a vision. We set precise, numeric goals for achieving our vision.”

Senate Banking, Housing and Urban Development Committee Chairman Tim Johnson, D-S.D., asked Castro about a 2012 inspector general’s report showing that his city in 2008 had not administered federal grants according to the rules. Castro said, “Those were preliminary findings, after which our staff provided back-up documentation to clarify the situation, we paid back $135,000 from non-federal funds and personnel were removed.”

Sen. Mike Crapo, R-Idaho, the panel’s ranking member, asked Castro whether he was concerned about a $1.7 billion cash infusion given the FHA for single-family mortgages in 2013 and whether he would support the FHA Solvency Act that cleared the panel in May.

Castro said the actuary now says the FHA’s insurance fund is “back on track and won’t need another infusion,” promising to achieve a positive capital ratio. He declined to specifically endorse the Johnson-Crapo bill (though Donovan had), saying legislation is part of the solution.

Several senators quizzed Castro on the restructuring of Freddie Mac and Fannie Mae, the quasi-government entities that are currently in federal conservatorship following losses from the 2008 financial crisis. “The status quo is not in the best interest of Americans,” Castro said. “It is preferable for taxpayers not to be in a position of first loss.” He agreed with Sen. Bob Corker, R-Tenn., that the “duopoly” of Fannie and Freddie in conservatorship “has no place in American society” when private capital is available.

But he said he had concerns about access to credit. The health of the Federal Housing Finance Agency has been “the subject of tremendous scrutiny and debate, and I understand it is on a more positive track now,” he said, citing use of reverse mortgages. “I have reason to believe there’s more confidence now. The average credit score is higher but we have to achieve an active balance to stay on its historical mission of making sure first-time homeowners” have access while having a policy that makes sure the 2008 losses do not happen again.

Castro pledged to focus on reducing veterans’ homelessness and on the housing needs of tribes in rural areas, “not just the big cities.”

Sen. Richard Shelby, R-Ala., asked him how he would “rein in spending on Section 8 housing,” which is 64 percent of HUD’s budget.

“Section 8 does consume a tremendous part of HUD’s overall budget,” Castro replied, “but rents rise. I would look into ways of achieving efficiencies.” He noted that Donovan “has looked for ways to be more nimble.”

Sen. Pat Toomey, R-Pa., pressed Castro on whether it is right for housing officials to use eminent domain to take over residential mortgages. Castro said the practice is being pursued “in only a handful of cities, is not in effect and is under litigation. But I understand why it causes concern among lenders.”

Toomey retorted, “I see I’m not going to get an answer to my question.”

At the same hearing, Laura Wertheimer, President Obama’s nominee to be inspector general of the Federal Housing Finance Agency, stated that “independence is at the core of the inspector general’s mission,” and that access to evidence is at the “core of achieving the mission.” The IG, she added, “must have a cordial but not collaborative relationship with the FHFA.”

Castro added a moment of levity to the hearing by noting, early on, the initial absence of his twin brother, Rep. Joachin Castro, D-Texas. “He was the second–born twin, so forgive him if he’s sometimes late.”